Microsoft's in-house sales strategy wasn't working, analyst argues

Microsoft may have accelerated plans to expand the Surface RT's retail footprint because touch-sensitive devices are the only Windows hardware flying off shelves, an analyst said yesterday.

In a shift from its in-house sales strategy, Microsoft announced Tuesday that the tablet will be sold in other retail outlets by mid-month.

In the U.S., Staples will start selling the Surface RT today, as will Best Buy through its online store. Best Buy will kick off in-store sales Sunday.

"We always knew that they would do this eventually," said Steven Baker of the NPD Group in a Tuesday interview, of Microsoft plans to widen distribution. Most experts, however, figured that that wouldn't happen until early 2013.

So what drove the turnaround? Baker said he didn't know, not with certainty, and that everyone, himself included, was guessing.

"You can look at this one of two ways. Either the products are doing well, and they wanted to accelerate their distribution," said Baker, "or the Surface is not doing well, and they decided they had to do something."

Baker said it was impossible to know which was more accurate because Microsoft has not shared Surface RT sales data, even in the most general terms. NPD, which tracks U.S. retail sales, does not have access to Microsoft store or online sales.

"No one has any real knowledge of their sales," Baker said. "But my guess is that [sales] volumes weren't where they wanted them to be."

Baker dismissed recent estimates by analysts, including those at the Boston-based brokerage firm Detwiler Fenton, who pegged Surface RT sales at between 500,000 and 600,000. "I can do a back-of-the-envelope calculation to get a number, too," Baker said.

But that doesn't mean it's accurate.

What the early move means, however, is that Microsoft's initial retailing strategy wasn't cutting it.

"I don't want to say that this is an indictment of the Surface RT, because I don't think it is," said Baker. "But the strategy to pump up the stores only had so many legs. At some point they were going to have to expand the distribution."

By Baker's analysis, Microsoft chose its original retail plan -- sell the Surface RT only in its own stores and online site -- for good reason. "It made sense to me at the time. The Surface was a different product, and Microsoft wanted every customer to have a great experience," he said. "They wanted to control [the customer] experience. Once you put it out in mass retail, you lose some level of control."

Microsoft may also have thought it could use the Surface RT to drive traffic to its stores -- more than half of which are temporary "pop-up" stores open only for the holidays, although that, too, has changed -- and, as Baker put it, "pump up the stores."

But with just 65 stores, only 31 of which are permanent, in the U.S. and Canada, and none in other markets, Microsoft was unable to cover enough retail ground. It can't instantly build more stores, but it will try a stop-gap: Also on Tuesday, the company said it would extend the lifespan of the 34 pop-ups into 2013, and mutate several into permanent stores.

Although Microsoft declined to say how long the pop-ups will remain open, they may linger well into next year. Microsoft plans to start selling the Surface Pro, a more expensive tablet that runs Windows 8 rather than Windows RT, in late January.

The Surface Pro will sell for $899 and $999 in 64GB and 128GB configurations, with the Touch Cover and Type Cover keyboards selling separately for $120 and $130.

Another factor, perhaps a deciding one for the faster-than-expected Surface RT retail shift, was the early sales signs of Windows 8, and by extension, the Windows RT tablet OS.

"What's selling is touch," said Baker, referring to NPD's data, which showed that while Windows 8's launch didn't boost PC sales, touchscreen devices were the one bright spot. "The problem is that there really aren't many [touchscreen devices] in the stores."

Microsoft saw that trend, too, Baker argued, and used it to decide the Surface RT's retail fate. "They may have said, 'Look, this is one of the best new devices with touch, touch is selling, let's get it in front of people now.'"

OEMs have taken the brunt of blame ladled out by analysts and other pundits for slow sales of Windows 8 machines, with me-too designs and a dearth of touch-enabled hardware often cited. Computer makers must shoulder some of that blame, said Baker, but they aren't the only culprits, which range from Windows' new UI and tough economic times to the desertion of dollars to tablets.

"Let's not shovel the blame," Baker said. "The fact is that touch is what's selling Windows 8, sales there are better than expected, and it's what resonates with customers."

Which may be the best explanation for Microsoft's decision to revise the Surface RT's retail timetable.